Last month, the House of Commons Treasury Committee published its report on crypto-assets. The report expresses serious concerns about the risks of consumer harm and financial crime and calls for regulation “as a matter of urgency“.

Crypto-assets?

It is striking that the Committee did not consider it appropriate to refer to "crypto-currencies" in the current landscape. They felt that these assets were failing to perform key functions of a currency, because:

The price volatility of such assets meant they were not a good store of value. The Bank of England gave evidence that Bitcoin is 10x more volatile than sterling against the US dollar. Other crypto-assets showed even greater fluctuations.

There was insufficient market liquidity and capacity for these assets to act as a medium of exchange. The Committee noted evidence that the blockchains for some crypto-assets were struggling to handle current payment volumes, leading to higher transaction fees and/or delays in executing transactions. The transaction fees were exacerbated by the higher energy costs of blockchain's decentralised system.

There were no crypto-assets being routinely or widely used as a unit of account. Even Bitcoin is not widely accepted.

The Committee looked at the hacking of exchanges, noting a lack of compensation scheme or arrangements put in place by the exchanges themselves. The Committee considered that "The risk of hacking associated with crypto-assets may not be something investors in conventional assets have experience of... they may not be well placed to judge this risk."

the Report notes that Initial Coin Offerings (ICOs) have "exposed a regulatory loophole that is being exploited to the detriment of ordinary investors." Although ICOs may be structured to fall outside the existing regulation, investors were clearly expecting financial returns in a similar manner to regulated investments.

The Committee noted suspicions that crypto-exchanges are being used to facilitate money laundering and terrorist financing, since they enable anonymous transacting. The Report acknowledged conflicting views on how significant this criminal use is. The Fifth Anti-Money Laundering Directive will bring crypto-exchanges within the money laundering regulations by 10 January 2020, but the Committee urges the UK Government to implement the regulations more promptly.

Some limitations identified by the Committee are inherent. Others could be reduced and/or eliminated by effective regulation. Presently, the FCA has no powers to regulate crypto-assets themselves and only limited scope to regulate ICOs. This limits the FCA to issuing warnings drawing attention to the risks investors in these products face. The Report considered such warnings "a feeble corrective to advertisements...that only emphasise the upside opportunities of crypto-asset investing". This led the Committee to conclude that:

"Given the scale and variety of consumer detriment, the potential role of crypto-assets in money laundering and the inadequacy of self-regulation, the Committee strongly believes that regulation should be introduced. At a minimum regulation should address consumer protection and money laundering."

What might regulation look like?

There is currently a level of self-regulation within the industry, but the Committee considered this insufficient. The Committee's recommended that in the first instance "The Regulated Activities Order should be updated to bring ICOs within the FCA's perimeter… and bring investor protections into line with those in the United States", where the Securities and Exchange Commission generally treats utility token issues as within existing securities laws. The Committee considered that this:

"...would be the quickest method of providing the FCA with the necessary legal powers to execute its duties of protecting consumers and maintaining market integrity. Designing a new framework of regulation would inevitably take much longer and given the growing risks surrounding crypto-assets and subsequent consumer detriment, the introduction of regulation should be treated as a matter of urgency."

The Committee suggested that regulation should include, at least, issuing ICOs and providing crypto exchange services.

The Committee also considered that, whilst there didn't appear to be a significant risk to market stability caused by crypto-assets, the Bank of England and FCA should continue to monitor this risk.

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

September 13, 2019

FCA | Sep 11, 2019 Speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at the Cambridge Centre for Alternative Finance annual conference, Judge Business School. Highlights: The UK has led the rest of the world with developments like the regulatory Sandbox, we are very proud of what has been achieved through it. Early engagement is incredibly valuable for monitoring, supervisory and policy purposes. Working with innovative firms helps us achieve a better bird’s-eye view, enhancing our understanding when the overall landscape is blurry and ­changing quickly. 'Stablecoin' is a term that has been widely adopted by industry, but we do not take it to be a distinct category of cryptoassets. Something labelled as a 'stablecoin' could sit within or outside of our regulatory perimeter. Note: this is the speech as drafted and may differ from the delivered version. See: FCA confirms new rules for P2P platforms Last month, Facebook announced its plans for Libra, the stablecoin it is planning to launch in conjunction with a number of payment and tech firms. As has been widely reported, along with other regulators and central banks, we have been discussing their plans with Facebook. If this comes ...Read More

September 13, 2019

NCFA Canada | Sep 13, 2019 JOIN US ON A STORYTELLING JOURNEY EVERY FRIDAY. Sep 13: Funding is Female with Jill Earthy EP37 GUEST: JILL EARTHY, Head of Female Funders (Linkedin) HOST: Manseeb Khan, Fintech Friday's show host BIO: Jill Earthy is an entrepreneurially minded leader who believes diversity drives innovation. As Head of Female Funders (powered by Highine BETA), she is empowering female leaders to become investors in early stage companies. Her background includes being an entrepreneur, supporting entrepreneurs in various leadership roles and working as Chief Growth Officer of FrontFundr, an online investment platform. She is a community leader and active mentor, currently serving on the national Board of Sustainable Development Technology Canada and as Board Chair of the Women’s Enterprise Centre in BC, and as Co-Chair of We for She. Jill was recently recognized by the Canadian Centre for Diversity and Inclusion award as a Community Champion, by Business in Vancouver as an Influential Woman in Business and by WXN as one the Top 100 most powerful women in Canada in 2019. About this episode: On this episode of NCFA'S Fintech Fridays Podcast, our host Manseeb Khan sits down with Jill Earthy the Head of Female Funders. The talk about what ...Read More

September 13, 2019

TechCrunch | Kate Clark | Sep 12, 2019 Affirm, founded by PayPal’s Max Levchin, is said to be raising as much as $1.5 billion in a combination of debt and equity, according to people with knowledge of the company’s fundraising activities. Josh Kushner’s New York venture capital firm Thrive Capital is said to be leading the financing, with participation from the San Francisco outfit Spark Capital. Affirm declined to comment. Representatives of Thrive and Spark, existing Affirm investors, have not responded to a request for comment. Sources familiar with Affirm, which gives consumers an alternative to personal loans and credit by financing online purchases at point-of-sale, presume the round will be made up largely of a line of credit from a large financial institution, known as a warehouse facility. Affirm recently raised a $300 million Thrive-led Series F round in April at a valuation of $3 billion. Fintech companies focused on payments and lending, however, require a vast amount of capital to sustain operations. Those capital requirements coupled with the frothiness of the venture capital market justify this additional cash infusion. To date, Affirm has raised $1.03 billion in funding from Ribbit Capital, Founders Fund, Andreessen Horowitz, Khosla Ventures, Lightspeed ...Read More

September 12, 2019

Le Monde with AFP | Sep 12, 2019 Bruno Le Maire expressed his hostility towards this cryptocurrency project, saying that "the monetary sovereignty of states is at stake" Finance Minister Bruno Le Maire announced on Thursday (September 12th) that France was refusing to authorize the development "on European soil" of libra, the cryptocurrency that Facebook wants to launch in 2020. "Considerable financial disorder" "The monetary sovereignty of states is at stake," said the minister at the opening of a conference of the Organization for Economic Co-operation and Development (OECD) dedicated to the challenges of cryptocurrencies - without specifying, however, what concrete measures he wanted engage to prevent the spread of libra in Europe. See: Facebook’s Libra Cryptocurrency: Everything We Know In his speech, Bruno Lemaire described as "systemic" the risks that could result from this "possible privatization of a currency (...) held by a single actor that has more than 2 billion users on the planet" . "Any failure in the functioning of this currency, in the management of its reserves, could create considerable financial disorders , " justified the Mayor, also fearing that the libra is replacing the national currency in the States where the currency is weak or ...Read More

September 12, 2019

CNBC | Bob Pisani | Sep 10, 2019 Key Points The head of the SEC says more needs to be done to make it easier for companies to go public. Jay Clayton says his office is taking a “fresh look” at allowing Main Street investors access to the private capital markets. The head of the SEC says more needs to be done to make it easier for companies to go public and that his office is taking a “fresh look” at allowing Main Street investors access to the private capital markets. In a speech to the Economic Club of New York on Monday, SEC Chairman Jay Clayton said the lack of more IPOs and the inability of most of the Main Street investing public to access private markets was a “growing concern.” Clayton addressed what he called the “two segments” in capital markets: the public markets, and private ones, including private equity and venture capital investments. See: The Solution To The Fintech IPO Shortage “Twenty-five years ago, the public markets dominated the private markets in virtually every measure,” he said. “Today, in many measures, the private markets outpace the public markets, including in aggregate size.” Clayton wants to make the ...Read More

September 12, 2019

Nesta UK | Rosalyn Old and Johnathan Bone | Sep 4, 2019 Earlier in May 2019, Nesta commissioned a report called 'Taking Ownership: Community Empowerment through Crowdfund Investments' that looked at how community-led projects have the power to transform local areas socially, economically and environmentally and how institutions such as local governments, municipal authorities and foundations, can help community-led initiatives by making the most of new investment crowdfunding models (eg community shares and bonds). Key Findings Investment crowdfunding has been used to fund a broad range of local assets, including but not limited to, saving local shops and pubs from closure, creating new community centres and art spaces, and expanding leisure facilities and infrastructure projects. Potential opportunities in using investment crowdfunding for community-led initiatives include helping to fund projects that would otherwise struggle to access finance elsewhere, increasing the use of and volunteering for community initiatives, and strengthening local resilience and self-determination by bringing communities together to improve their area. The main challenges for community organisations raising money in this way include gaining access to assets to buy or use on a temporary basis, transitioning from grassroots fundraising to implementing a project and avoiding negative impacts on diversity and inclusion ...Read More

September 11, 2019

NCFA Canada on behalf of our partner's Lending Loop | Sep 11, 2019 HAVE YOU EVER SEEN A CHESHIRE CAT SMILE? Well they deserve it. Back in October 2015, NCFA made this introductory video with Cato Pastoll, CEO and Co-Founder of Lending Loop, about a peer to peer lending marketplace for small businesses model that was new to Canada but was achieving significant growth internationally. The question and opportunity was back then: why not here in Canada? A question that many of us ask ourselves, ask the community and point fingers at strict regulations and high operating costs. Well fast forward several years and growth obstacles later, and the Lending Loop story continues to impress with their latest milestone of lending over $50 million to deserving small businesses to help them grow and expand operations while providing retail and accredited investors direct access to a wide range of lending and investment options, a robust community and the chance to strengthen Canadian small business - here here! The early vision... Brandon Vlaar, Co-founder and CTO of Lending Loop sharing their good news! CONGRATS to the entire Lending Loop Team for achieving this latest milestone. We've 'got your back' and look forward ...Read More

September 11, 2019

NCFA Guest Post | Sep 9, 2019 The world was shook when online money was first introduced. Some people didn’t like the idea. They’d prefer having something tangible, something that they can actually see and touch to use as currency. Some people were positive about the new experience. They believe that it can certainly make life more convenient. But hey, we’re now in 2019 and online currency is still widely in use. In fact, its uses have expanded way more since it was first introduced (read more). One of the most popular and controversial of its time was BTC or Bitcoin. Even without studying cryptocurrencies, you’ve probably heard this term once or twice before. You may have come across it in the internet or someone may have encouraged you to try trading it. After all, when cryptocurrency was first brought to light, many people saw its potential in the trading market. And it has been making noise ever since. See: New Regulatory Framework for Canadian Retail Payments Coming in 2019 At first, Bitcoin was surrounded with a lot of controversy – and of course, a lot of doubt. People were scared of exchanging real world money for something that you ...Read More

September 11, 2019

Holt Accelerator | Samah El Falah | Sep 11, 2019 Holt Deal Day event series are seeking senior representatives of financial institutions, or fintech investors and experts to attend Holt’s Deal Day, taking place at Vancouver (Sept. 20th), Toronto (Sept. 23rd), Waterloo (Sept. 27th), Montreal (October, 2nd). Don’t miss out on the opportunity to interact with eight up & coming Fintech stars who will surely make a difference in Canada and beyond. As an investor, corporate or expert interested in Fintech, our Deal Days offer you an insider’s view of the upcoming trends and current challenges the industry is facing. What do the Deal Days consist of? Coffee / Registration (30 minutes) Canada Fintech Presentation by Holt (15 minutes) Presentation on the current Fintech Ecosystem. The challenges & insights we gathered about 3 core fintech areas: Cybersecurity/Data Protection, Wealth Management (including Digital Assets), & Lending. 10 table mini-breakout session (30 minutes) Detailed roundtable discussions surrounding one of the topics covered during the Holt presentation. Speed-Dating (2 hours and 30 minutes) You will have the opportunity to see the 2019 cohort pitch after being part of the Accelerator program for a month. Just like our Selection Days, each pitch will end ...Read More

September 11, 2019

Reuters | Tom Wilson | Sep 11, 2019 LONDON (Reuters) - “Hi guys, could you please show me a firm bid for 100 bitcoin?” a seller texts on Skype. Joel Fruhman, right, and Dan Fruhman, directors of BCB Group pose for a photograph in London, Britain August 29 2019. REUTERS/Simon Dawson “One sec. $10270.” Two minutes later: “Sorry guys, that was an old order from Friday when skype wasn’t working.” “I really think we should get off skype. Bad things could happen. Someone is going to make an expensive mistake.” See: New money-laundering rules change everything for cryptocurrency exchanges A messaging exchange over a potential $1 million deal, between a European asset manager looking to sell bitcoin and broker Joel Fruhman, illustrates the casual and often chaotic nature of cryptocurrency dealmaking. Trades involving hundreds of thousands, or millions, of dollars are routinely struck via brief chats on apps like Skype, WhatsApp, WeChat or Zoom, often with scant certainty over the identities of participants or the legal basis of agreements. “We’d end up in a Zoom call with about five ‘introducers’ - we didn’t really know who any of them were,” said Fruhman, a physicist by training who started a cryptocurrency ...Read More